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Wednesday, January 15, 2014

Canara Bank may resist government diktat to sell products of multiple insurers

Calling the government's proposal to sell products of
multiple insurance companies 'not implementable', the Bangalore-based public
sector lender Canara Bank has decided to oppose it. According to Canara Bank
officials, the bank has planned to pass a resolution rejecting the government's
diktat. The bank has already circulated a note in this regard to its board members,
the officials said.

Resolutions can be passed through board notes when directors are unable to meet
within a given timeframe.

Aiming to improve the reach of insurance products, the finance ministry had
recently asked all PSU banks to act as insurance brokers, adopting which they
would be able to sell insurance policies of multiple companies. At present,
most of them sell policies under the corporate agency arrangement which
prevents them from selling products of more than one life insurer and one
general insurer.

The ministry feels the wide network of state-run banks will help insurance to
reach remote areas. This problem arises because most of the banks have floated
insurance companies in partnership with foreign insurers with an understanding
that they would sell products of only the company they have promoted.

For example- Canara Bank and Oriental Bank of Commerce, both government-run,
have floated a joint life insurance company in partnership with HSBC. As per
the agreement among the three, the partners are prevented from selling products
of any other life insurance company.

Recently, the Indian Banks' Association had written to the finance ministry,
saying that the management of each bank should be given the freedom to decide
on whether they would be competent enough to sell products of more than one
insurer.

Not all banks would be positioned to provide insurance broking service because
the Reserve Bank of India (RBI) is not in favour of banks with bad loans above
3 percent to get into insurance broking service, the Indian Banks' Association
said.

As of now, State Bank of India, Central Bank of India and Punjab National Bank
have bad loans of more than 3 percent.